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Gold’s decline takes a respite

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Gold’s decline takes a respite

Gold prices paused from their recent decline hovering near the 10-day moving average.  Gold has fallen along with other major currencies as the greenback has gained strength as yields in the US moved higher.  5 and 10-year yields have broken out reaching the highest levels since 2011.

The yield differential between US and gold forwards have moved significantly in the US’s favor as the 5-year yield in the US pushed above the 31.6% level.  A higher yield differential in the gold forward curve makes borrowing gold more expensive relative to the US dollar, and therefore harder to short the greenback. The 5-year yield is poised to test the 2% level as the economy in the US continues to gain traction.  Friday’s stronger than expected US non-farm payrolls report did not help the case for gold bulls.

Last week’s employment data showed that the private sector is gaining strength.  According to the BLS private sector payrolls increased by 202K while the government shed 7K jobs creating a net of 195K jobs during June.  This is similar to the increase reported by ADP which showed nearly a 200K increase in private payrolls in June earlier last week.

Gold prices were steady on Monday, but were unable to push above the 10-day moving average near $1,240.  Support is seen near the recent lows at $1,183.  Momentum on gold is flattening, as the MACD hovers near the zero index level.  Any upward movement in gold prices could see a change in momentum and a buy signal in the MACD index.  The RSI (relative strength index) which is an oscillator that measures overbought and oversold levels is printing near 35 which is on the low end of the neutral range.

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